The rankings are based on Tier 1 capital as defined by Basel’s Bank for International Settlements (BIS). The definition is stricter than total stockholders’ equity and covers only the core of the bank’s strength – the shareholders’ equity available to cover actual or potential losses. Tier 1 includes common stock, disclosed reserves and retained earnings and, in the case of consolidated accounts, minority interests in the equity of subsidiaries that are less than wholly owned; it excludes cumulative preference shares, revaluation reserves, hidden reserves, subordinated and other long-term debt. These are defined as Tier 2 capital. Goodwill is deducted from Tier 1.
The object of the survey is to show the banks’ soundness in relation to the Basel requirement of a minimum Tier 1 capital on risk-weighted assets of 4%, and a minimum ratio of capital to risk-weighted assets of 8%. The published assets figures differ from the risk-weighted assets figures that are used to calculate BIS ratios. Weights applied range from zero (to assets such as cash, claims on central banks and governments in local currency), to 20% (to assets such as lending to multilateral development banks), to 50% (to residential mortgages) to 100% (to private-sector lending, non-OECD lending and so on). However, the Basel rules adopted by individual countries’ regulatory authorities will vary to some extent.
Wherever possible, the total assets figures shown exclude third-party items such as acceptances, guarantees and securities held with third parties.
Pre-tax profits are used to show banks’ performance and the figures for real profit growth take inflation into account. The profit-on-capital ratios are calculated using the average of the latest and previous years’ capital figures.
The NPL column refers to the gross non-performing loans as a percentage of the total loan book.
This year, we have excluded all banks whose latest figures were prior to December 31, 2003, even though they may still be operating.
Top 1000 by Country listing
As cross-border mergers continue, a number of banks have disappeared from the Top 1000 listing through consolidation into their new parent bank’s accounts but remain a significant presence in their country of origin. In an attempt to reflect this situation more correctly in these countries, the Top 1000 by Country listing continues to include banks that are foreign owned provided that their Tier 1 capital is above the lowest limit of the Top 1000 listing. These banks are marked by ‘fo’ in the World ranking column.
